Q3 2024 Earnings Summary
- Strong Growth in ATM as a Service Business: The company’s ATM as a Service revenue is currently $200 million, growing at 30% year-to-date. With an increasing ARPU and 8,000 high-value units in backlog for next year, this segment is positioned for continued expansion.
- Anticipated EBITDA Growth and Margin Expansion in 2025: Management expects 8% to 10% EBITDA growth in 2025 on 3% to 4% revenue growth, indicating ongoing margin expansion due to cost reductions and a focus on higher-margin services. This is expected to lead to a much higher free cash flow in 2025.
- Upcoming Hardware Refresh Cycle Driving Growth: The company anticipates that hardware revenue will be a contributor to growth in 2025 and 2026, with larger orders from big bank customers suggesting they are entering a hardware refresh cycle. This is expected to result in much higher hardware revenue, supporting overall growth.
- Pricing pressure in service offerings in key markets like India may impact margins. The company acknowledges that pricing pressure in services is affecting the total life cycle cost of ATMs in India, primarily due to competition in servicing rather than hardware sales.
- Management admits that current margin rates are "not high enough" and further productivity improvements are needed. Despite margin improvements over the year, the company recognizes the need to continue driving margin higher, which may indicate potential challenges in achieving desired margin expansion.
- Lack of specific guidance on ATM as a Service revenue and units for 2025 indicates uncertainty in future growth projections. The company has not provided guidance on key metrics for ATM as a Service in 2025, potentially causing uncertainty among investors.
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Free Cash Flow Outlook
Q: What's the free cash flow profile for 2025?
A: Management expects 3–4% growth in the core business and 8–10% EBITDA growth in 2025. With a higher 35% conversion factor of EBITDA to free cash flow, they anticipate a much higher free cash flow next year. -
Margin Expansion
Q: How should we think about incremental EBITDA margins going forward?
A: Margins are improving; they aim to exit the year at around 20%, up from 15% earlier due to separation costs. Further margin expansion is expected in 2025 through productivity improvements and cost reductions. -
Capital Deployment and Share Buybacks
Q: When can we expect share repurchases and capital deployment?
A: The Board focuses on reducing debt to be under 3x levered by mid-next year. Once achieved, they will consider returning cash to shareholders, favoring share buybacks given the undervalued stock price. -
ATM as a Service Growth
Q: Can you discuss ATM as a Service revenue growth and ARPU trends?
A: ATM as a Service is a $200 million business, growing 30% year-to-date. Backlog ARPU is above $13,000, higher than the current $8,500, driven by higher-value units and services in North America. ARPU is expected to increase steadily. -
Recurring Revenue Mix Target
Q: Are you on track to reach your recurring revenue mix target of 80%?
A: They remain on track, with most growth coming from the recurring revenue space, and expect to deliver that growth as planned. -
Hardware Refresh Cycle
Q: Where are you in the hardware refresh cycle?
A: They are in the early stages; larger orders from big bank customers suggest the cycle is beginning. Hardware revenue is expected to contribute to growth in 2025 and 2026. -
Competitive Dynamics in APAC
Q: Any changes in competitive dynamics in APAC?
A: No changes observed; pricing pressure is in service, not hardware. Major competitors' pricing behavior remains consistent, and they continue to compete effectively. -
Cost of Cash in Network Business
Q: How should we think about cost of cash in the network business?
A: The cost of cash will be a slight headwind in 2025, becoming a tailwind in 2026–2027 due to derivative swaps that smooth out interest rates over time.
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